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June 2, 2009

Why did E Ink sell?

E Ink has sold itself to Prime View International, a large Taiwanese display manufacturer, and I don’t understand why.

Now, it’s not surprising I don’t understand why. I have no info about E Ink’s financial state other than this article by Robert Weisman in the Boston Globe, and in any case I’m not a great financial guy (and I have the bank statements to prove it). So, my surprise may well be due to nothing but ignorance. Nevertheless, here’s why I was taken aback by the announcement.
E Ink is on a roll in a market that is about to explode (in the good sense). After ten years of work developing a low-power, highly legible display, it’s got something that works. Thanks to Kindle, it’s proven itself in the mass market and it’s in lots of people’s hands. And the market is about to take off now that we have digital delivery systems, a new generation of hardware, and a huge disruption in the traditional publishing market. So, why would E Ink sell itself?

The price — $215M — seems relatively low for such a hot product. If they need the money to fund R&D or to build manufacturing facilities, surely (= it’s not at all sure) there were other possibilities. Apparently the market crisis made an IPO implausible, although, to tell the truth, I — with my weak financial grasp — am not convinced. Investors are looking for places to invest, and E Ink looks like it’s exactly the sort of company they’d love to back: a proven leader in a market that’s obviously on the verge of explosive growth. It’d be like getting in on the early stage of iPods, only potentially bigger, since everyone who reads eventually will have an e-reader. But, if an IPO was out, why wouldn’t E Ink have preferred other forms of investment, including giving a partnership and equity stake to Prime View?

The most likely explanation by far is that I don’t understand what I’m talking about. Another explanation is that the company and its investors simply wanted to cash in by cashing out; the Globe article suggests this. But, that again raises the question of why they’d want to exit a company with a product in a market that’s about to take off. Perhaps they have reason to think the market is not going to take off , but that seems wrong; note that Google yesterday announced it’s going to enter the online book sales business. Or maybe they have doubts about E Ink technology. Maybe they worry the cost won’t drop fast enough for a commoditized market. Maybe color isn’t on its way fast enough. Maybe they’re worried about the inability (or so I’m presuming) of their tech ever to handle video, since the winning e-reader will eventually be multimedia. Maybe they know about ebooks on the way — Apple iPad or whatever the presumed product will be called — that will make static, black-on-gray pages seem obsolete.

So, I don’t know. But it smells fishy to me…although, as I may have mentioned, my financial sniffer has never been very reliable, and I’ll be happy to be set straight about this.

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